Korea Derivatives Investment Advisor common mistakes
Korea Derivatives Investment Advisor · Understand the traps and how to avoid them.
Treating 'derivatives' as only futures and options, so questions about swaps, forwards, and structured notes get answered by analogy to futures rather than by their own contract mechanics.
Most prep time goes to exchange-traded products because they appear in price and margin questions; OTC instruments are skimmed, so candidates misclassify them or miss that a swap has no upfront premium and a forward carries counterparty credit risk.
What to do instead
Build a four-column table (futures, options, forwards, swaps) covering: where traded, obligation vs right, upfront payment, margin/collateral, counterparty risk, and typical Korean use case. Answer classification questions by locating the instrument in the table before reading the answer choices.
Confusing the roles of KRX, the Financial Services Commission, and the Financial Supervisory Service when asked who approves a product, who supervises conduct, and who operates the market and clearing.
The three institutions are introduced together in overview material and candidates memorize names without mapping each to a distinct function, so 'who does X' questions are answered by whichever name was seen most recently.
What to do instead
Write a one-line function statement for each body and test yourself by covering the names: market operation and clearing (KRX), rule-making and licensing (FSC), inspection and enforcement (FSS). For each practice question, name the function first, then the institution.
Mixing up the direction of margin calls and the difference between initial margin, maintenance margin, and variation settlement when computing a position's cash flow after a price move.
Candidates memorize formulas but not the timing, so they apply maintenance margin at trade entry or forget that daily variation settlement resets the position's equity before the margin check.
What to do instead
Work numerical scenarios end to end: enter a position, mark to market, settle variation, then compare equity to maintenance margin. Do at least ten such drills with different leverage and price moves, and always write the sequence of steps before computing.
Applying the cost-of-carry formula mechanically and getting the sign or the carry components wrong, especially for dividends, storage costs, and foreign-currency interest rates.
Candidates learn one forward-pricing formula by rote and never rebuild it from a replication argument, so a change in the problem (dividend yield instead of cash dividend, foreign rate instead of domestic) breaks the answer.
What to do instead
Derive the forward price each time from 'buy spot, finance it, carry it, deliver at T' and list every cash flow with its sign. Practice variants: discrete dividend, continuous yield, storage cost, foreign currency, and convenience yield, checking that each result is arbitrage-consistent.
Reciting put-call parity as a formula without being able to construct the replicating portfolio, so questions that ask which combination synthesizes a bond, stock, or option are missed.
Parity is studied as an equation to memorize rather than as a no-arbitrage relationship, and candidates never practice rearranging it into each of the four synthetic positions.
What to do instead
For each of the four rearrangements of parity, state in words what is bought and what is sold, and draw the payoff at expiry. Then solve two or three practice items per rearrangement until the mapping is automatic.
Choosing a hedging strategy by name ('protective put', 'covered call', 'collar') without checking whether the resulting payoff actually caps the exposure the client described.
Strategy labels are learned as vocabulary, and candidates match the label to the scenario keyword instead of drawing the combined payoff and verifying the risk profile.
What to do instead
For every strategy question, sketch the payoff of the combined position across a price range before looking at the options. Confirm the maximum loss, maximum gain, and breakeven, then check which answer choice matches those three numbers.
Ignoring Greeks beyond delta, or treating vega and theta as always favorable, when assessing how an option position's risk changes as expiry approaches or volatility shifts.
Delta is the only Greek with an intuitive 'share-equivalent' meaning, so the others are memorized as symbols; candidates then miss questions about time decay accelerating near expiry or about long options losing value from falling volatility.
What to do instead
For each Greek, write the sign for long call, long put, short call, short put, and add one sentence on when it hurts. Practice by predicting, before computing, whether a position gains or loses when volatility falls and when one week passes.
Treating suitability as a disclosure formality: recommending a high-risk leveraged or structured product because the client signed a risk acknowledgment, without matching the product to investment purpose, horizon, or loss tolerance.
Compliance material is read as paperwork to be completed, and candidates conflate 'the client agreed' with 'the recommendation was suitable', which is exactly the distinction exam items test.
What to do instead
For every recommendation scenario, answer in a fixed order: client's objective and horizon, ability to bear loss, product's maximum loss and liquidity, then whether the recommendation fits. If any step fails, the correct answer is usually not to recommend or to recommend a simpler alternative.
Missing the specific investor-protection rules that attach to high-risk and leveraged products, such as suitability classification, explanation duties, and cooling-off or cancellation rights, and answering from general fairness intuition.
These rules are numerous and similar across product types, so candidates learn the principle ('protect retail investors') and skip the concrete triggers, thresholds, and exceptions that questions target.
What to do instead
Create a comparison sheet of the protection rules by product category: who may be sold the product, what must be explained and recorded, and what cancellation or dispute rights apply. Note explicitly which rules do not apply to professional investors.
Answering ethics items by picking the option that maximizes client return or preserves the sale, rather than the option that resolves the conflict of interest or discloses it.
Candidates carry a commercial mindset into the ethics section and read 'best for the client' as 'highest expected profit', overlooking conflicts such as compensation-driven recommendations or front-running client orders.
What to do instead
On every ethics item, first identify the conflict of interest, then eliminate any answer that hides it, defers disclosure, or benefits the adviser. Prefer the option that discloses, documents, or escalates, and practice by labeling the conflict in each scenario before reading the choices.